Home » General Electric’s (GE) CEO Jeffrey Immelt on Q3 2014 Results – Earnings Call Transcript

General Electric’s (GE) CEO Jeffrey Immelt on Q3 2014 Results – Earnings Call Transcript

General Electric Company (NYSE:GE)

Q3 2014 Earnings Conference Call

October 17, 2014 8:30 a.m. ET


Matthew Cribbins – Vice President, Investor Communications

Jeffrey Immelt – Chairman and Chief Executive Officer

Kieran Murphy – Vice President, GE Healthcare Life Sciences

Jeffrey Bornstein – Senior Vice President and Chief Financial Officer


Scott Davis – Barclays Capital

Nigel Coe – Morgan Stanley

Steven Winoker – Sanford Bernstein

Steve Tusa – JPMorgan

Deane Dray – Citigroup

Jeff Sprague – Vertical Research Partners

John Inch – Deutsche Bank

Andrew Obin – Bank of America Merrill Lynch


Good day ladies and gentlemen, and welcome to the General Electric Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Vivian and I will be your conference coordinator today. (Operator instructions) As a reminder this conference is being recorded.

I would now like to turn the program over to your host for today’s conference, Matt Cribbins, Vice President of Investor Communications. Please proceed.

Matthew Cribbins – Vice President, Investor Communications

Great, thank you. Good morning, and welcome, everyone. We are pleased to host today’s third quarter webcast. Regarding the materials for this webcast, we issued the press release presentation and GE Supplemental earlier this morning on our website at www.ge.com/investor. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes. Please interpret them in that light.

For today’s webcast, we have our Chairman and CEO, Jeff Immelt; our Senior Vice President and CFO, Jeff Bornstein, and our Vice President, GE Healthcare Life Sciences, Kieran Murphy. We’ve asked Kieran to join to talk about our life sciences business.

Now with that, I’d like to turn it over to our Chairman and CEO, Jeff Immelt.

Jeffrey Immelt – Chairman and Chief Executive Officer

Thanks, Matt. We continue to plan against the global macro backdrop to this volatile and one where some economic projections of recent been revised downwards. That said, we are seeing solid pockets of underlying growth in many of our markets. The good news for us is that we plan for volatile environment, our businesses are executing well, and we are tracking to our expectations for the year.

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As a result, we had a good quarter. EPS was $0.38, an increase of 6% versus last year. Our Industrial segment profits grew by 9%. Our relative position in key markets is improving. We’ve gained share in transportation, aviation, power and healthcare. We had great new products.

Orders grew by 22%. For the first time in a while we are seeing volume improving for GE Capital in the US. GE grew margins by 90 basis points. We continue to generate benefits from our simplification efforts and are on track for more than $1 billion of costs out for the year.

Margins improved in six or seven businesses and our costs out momentum are strong. We remain on track for CFOA for the year. So we are running the company well. And we are executing on our portfolio strategy.

We launched the Synchrony IPO in July and as we move forward this will dramatically reduce the size of GE Capital and our presence in consumer finance and we’ve invested in platforms like Milestone Aviation, a helicopter leasing business linked to GE Aviation.

So we are on track to create a smaller GE Capital focused on commercial finance. At the same time, we announced the sale of Appliances a legacy GE business. The Synchrony spend, Appliances sale and also some acquisition from the second quarter, are all a part of repositioning GE to be the world’s best infrastructure and technology company with a smaller financial services division.

This is a more valuable GE with 75% of our earnings from industrial by 2016. We are winning in the market. Orders were robust in the quarter growing 22% and this was driven by 31% equipment orders growth and 10% growth in services. Orders pricing was positive in the third quarter.

Technology drives high margin share and we took orders for more than a 1000 Tier-4 compliant locomotives in the quarter and are ahead of the competition. Aviation continues to enjoy a great success with LEAP wins, GEnx share growth and the GE9X launch orders.

For the first time in a while, power and water equipment orders grew in the United States, up 41%. We now have 13 H turbines in backlog and we are enjoying good success in oil and gas as Subsea orders growing by 63% and the launch of the 20K Blow Out Preventer.

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NPIs are helping healthcare to grow in the United States and new innovations are helping LEDs to grow orders by 60% and power conversion by 30%.

Service orders grew by 10% with growth in five of the six businesses, aviation and commercial spares were up 29% and power gen services grew by 10% despite some sluggish end-use markets.

Last week, we announced new analytical applications and that our predictivity solution revenues will exceed $1 billion in 2014. Orders growth was broad based geographically, US orders were strong with growth of 25% and growth markets expanded by 34% with five of nine regions up in the quarter.

These include Chine up 26%, orders from the Middle East, North Africa and Turkey doubled, Latin America was up 54%, Africa up 9% and Canada up 46%. Backlog is a record of $250 billion, up more than $20 billion in the past 12 months.

We had a service backlog true-up in aviation driven by finalization of terms with CFM for LEAP, which reduced the total by $2 billion, nonetheless were at record high. Strong orders positioned GE for sustained growth in the fourth quarter and beyond.

Segment profits grew by 9% with six of seven segments expanding. Year-to-date segment profit is up 10% driven by 5% organic revenue growth and 50 basis points of margin expansion.

Organic growth was up 4% in the quarter and 5% year-to-date, aviation and transportation remained very strong with equipment growth of more than 10%. Oil and gas organic growth was up 10%.

We saw a strong US environment in healthcare and power and water had sub-comps in the third quarter, while we have a very strong fourth quarter shipments versus last year. And for the year, our industrial organic growth should be at the high end of our framework.

We had another strong quarter on margins of 16.3% up 90 basis points. Big drivers continue to be value gap productivity and simplification and we expect this to continue. Year-to-date margins are up 50 basis points and service margins have grown by 170 basis points year-to-date.

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With service orders growing by 10% and strong margin expansion, we are seeing some of the early signs that our investment has started paying off.

We remain on track to growing industrial segment profits by 10% at least this year. We’ve generated $7.2 billion of CFOA year-to-date and are on track for $14 billion to $17 billion for the year. For the quarter, we grew CFOA by 41%.

GE Capital dividends are on track for $3 billion in the year. We will generate substantial CFOA in the fourth quarter driven by much higher industrial earnings and stronger shipments than last year.

We continue to have strong liquidity and balance sheet strength, GE Capital Tier-1 ratio was 12.1%, up 80 basis points and we are targeting buyback and dividends of more than $11 billion for the year.

In addition, we expect the Synchrony split to take GE shares below $9.5 billion by the end of 2015. Our capital allocation continues to be disciplined and balanced.

Now let me turn you over to Kieran Murphy who is the leader of our Global Life Sciences business. This is a strong GE franchise with expanding organic growth, margins and cash flow. Kieran joined GE in 2008 and has 25 years of experience in the life sciences industry.

Kieran Murphy – Vice President, GE Healthcare Life Sciences

Thanks, Jeff. Good morning and thanks for giving me the opportunity to tell you more about life sciences, a $3.7 billion business within GE Healthcare. The healthcare industry is moving towards a more precise diagnosis with more precise treatment to address an annual waste of $350 billion since most around 90% of currently marketed drugs, only work for about 40% of people.

Precision medicine would improve patient outcomes and reduced healthcare costs and this is driving the demand for biologics as opposed to chemical medicines improving efficacy, and reducing side-effects.

We are in a central component of drug manufacture for this industry. Our presence in life sciences extends from the research lab where we helped in the discovery of new medicines to the manufacturing plants where we deliver capacity and productivity.

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